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Banking On Cheap Oil Prices Not Easy Weekly Energy Review for November 5, 2014 While crude oil and ULSD futures are at multi-year lows, farmers looking for bargains on red diesel likely will have to be creative with aggressive marketing. Diesel futures made fresh four-year lows Wednesday, but prices in the Midwest wholesale cash market rocketed higher on another plunge in supplies. Soaring basis took wholesale cash prices 50 cents above futures, which are delivered in New York Harbor. Basis for
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  Banking On Cheap Oil Prices Not Easy Weekly Energy Review for November 5, 2014 While crude oil and ULSD futures are at multi-year lows, farmers looking for bargains on red diesel likely will have to be creative with aggressive marketing. Diesel futures made fresh four-year lows Wednesday, but prices in the Midwest wholesale cash market rocketed higher on another plunge in supplies. Soaring basis took wholesale cash prices 50 cents above futures, which are delivered in New York Harbor. Basis for the widely used Group 3 benchmark neared levels hit when Midwest supplies were diverted to the East Coast in the wake of Superstorm Sandy in 2012. The Mid-Continent price at Conway, KS, reached 50 cents over, its highest level since at least 2006. While some shuttered refineries were scheduled to be back on line, more maintenance issues took production down another 13,000 barrels a day last week, the sixth straight weekly decline. Almost the entire 1.7 million barrel decline in inventories came in the Midwest, where demand from farmers is still strong. Pipeline outages also triggered buying, creating some spot shortages in the upper Midwest. Gasoline supplies are also dropping on seasonal maintenance, and perhaps better demand as prices fall. That got the attention of the market today after release of weekly supply and demand data, with crude oil reversing higher after hitting three-year lows at $76.46. Crude has come under pressure from concerns about slowing demand from a faltering world economy, just as U.S. output increases, prompting Saudi  Arabia to slash prices in a bid to maintain market share. The tight Midwest diesel market makes buying fuel difficult. Basis should weaken into winter as ag demand slumps, but futures prices could be higher depending on world events and winter weather. We previously recommended a scale down approach that locked in two 25% increments of spring fuel needs in the cash market, with another 25% done in futures, leaving basis open until cash is purchased. Some dealers will offer this type of deal and large growers who are comfortable trading futures and use a lot of fuel can also do this on the board – the contracts cover 1,000 barrels, or 42,000 gallons. Mini-contracts are available but have very thin volume. Swaps are another possibility if your broker handles them. Futures have fallen into the bottom 15% of the expected price range given current fundamentals, which put average fair value around $90. Renewed concerns about a supply glut and slow growth could take crude prices toward $72, which might take diesel to $2.30 or less. Propane prices are stronger, despite weaker demand last week. Swaps continue to show a good break in prices into spring and early summer, the best time seasonally to buy inventory to dry next year’s crop.  1517192123252729 Source: EIA Days of Crude Oil Supplies Current YearPrior Year    - 500,000 1,000,000 1,500,000 2,000,000 2,500,00002040608010012014016019992001200320052007200920112013    C  r  u   d  e   O   i   l Commitment of Traders -Crude Oil Crude OilOpen Interest  

Chapter 10

Jul 23, 2017
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